Analysis of discrepancies in the money demand of households and of firms in the Czech Republic 1994-2000: Part I. Households

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Ve fondu ÚK

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This paper addresses specifics of the money demand function of households in the Czech Republic, especially in relation to the money demand of firms, and raises a potential problem that may arise from the subsequent aggregation of the money demand of households and firms. Specifically, the analysis considers M1 and M2 monetary aggregates as representatives of narrow and broad money in the Czech Republic. However, before offering empirical analysis, two theoretical approaches to the money demand of households are summarized: Namely, the buffer-stock model of money demand and the Sprekle-Miller model of the precautionary money demand of small economic units. In a time-series analysis in the empirical section of the article, the author makes use of the Johansen technique and DOLS to estimate models of money demand by households in the Czech Republic. Ultimately, a standard set of stability tests is applied to parsimonious versions of the estimates to gage potential structural break.